Launched in May 2005, Fidelity Equity Fund is a well diversified equity fund investing in stocks across market capitalisation and sectors. The fund, which is managed by Sandeep Kothari and Subramanian Balakrishnan, invests across large, mid and small cap stocks without any investment style bias. The asset under management of the fund stood at 3,273-crore as on October. Fidelity Equity fund has been Crisil Fund Rank 1 for the last two quarters in the Diversified Equity category
Impressive performance
The fund has been delivering impressive returns since its launch. The fund's compounded annualised returns since its inception have been 26 per cent till December 16, as compared to its benchmark's (BSE 200's) 21 per cent return during the same period. Over a five-year period, the fund returned 21 per cent, clearly outperforming the BSE 200 and peers, which returned 16 per cent and 17 per cent, respectively. Over the past one year, the fund benefited from the recent rally in stock-prices and delivered a CAGR of 28 per cent vis-à-vis 17 per cent by the BSE 200 and 20 per cent by its peers.
While `1,000 invested in the fund at inception would have grown to `3,706 as on December 16, a similar sum invested in the benchmark index and peer group would have grown to 2,848 and `2,941, respectively.
Investment approach
The fund's objective allows freedom to invest regardless of sector, market capitalisation or investment style. Thus, the fund manager can invest in large cap, mid cap or small cap stocks with growth or value styles. The fund's average exposure to Crisil defined large cap stocks over the last three years has been 76 per cent, while the balance exposure has been in small and mid cap stocks.
The fund follows a bottomup stock picking investment approach (prefers to focus on individual stocks rather than a top-down approach). The fund's performance during the market downturn and upturn proves testimonial to its bottom-up stock picking approach. When the markets started to decline from their historic highs in the beginning of 2008, Fidelity Equity fund fell by 35 per cent as compared to a 41 per cent fall in the BSE 200 from January 2008 till April 2009. When the markets started to recover from May 2009, Fidelity Equity fund gained 54 per cent as compared to a rise of 45 per cent by the BSE 200. Thus, the fund's ability to gain more in a market rally and bleed less in a market downturn stands out.
Portfolio analysis
Active cash calls: The fund has remained well invested in equities with an average exposure of 94 per cent over the last three years. The fund manager has taken active cash calls during the bear run starting May 2008 until April 2009 by maintaining an average cash exposure of 10 per cent during this period. Post this phase, the fund manager gradually lowered the cash exposure, bringing it to as low as 0.6 per cent in November 2009. Lately, the fund maintained 3.7 per cent as cash in its October portfolio.
Diversification: The fund held an average of 64 stocks in its portfolio over the past three years, thus representing a well diversified portfolio in terms of number of stocks. At the sector level, banking has been the most favoured sector with an 18 per cent exposure followed by pharma, IT and refineries constituting the next largest sector exposures (close to 7 per cent each) over the last three years.
Risk: The fund has been able to generate superior returns by maintaining a low volatility in its returns vis-à-vis peers and the benchmark index. The fund bears a relatively lower risk owing to its large cap tilt and hence provides more cushion to investors during times of market volatility.
